Kopin Corporation: Adverse Jury Verdict Likely To Cause Concern Warning - Sell

seekingalpha04-24

On Tuesday, shares of microdisplay developer and producer Kopin Corporation sold off after the company disclosed a surprise court loss in its long-standing litigation with BlueRadios, Inc.In aggregate...

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Anatoly Morozov/iStock via Getty Images On Tuesday, shares of microdisplay developer and producer Kopin Corporation or \"Kopin\" (NASDAQ:KOPN) sold off after the company updated investors on an unfavorable jury verdict in its long-standing litigation with BlueRadios, Inc. or \"BlueRadios\" (emphasis added by author):  On Monday, April 22, 2024, a jury verdict was entered in the U.S. District Court for the District of Colorado finding for the plaintiff, BlueRadios, Inc. and awarding approximately $5.1 million in damages as well as recommending $19.7 million in disgorgement and exemplary damages. The Court will take that recommendation under advisement and will rule on the final number after briefing on the issues in the matter of BlueRadios, Inc. v. Kopin Corporation, Inc. “We are very disappointed in the outcome and do not believe the findings were justified by the facts presented,” said Michael Murray Kopin’s Chief Executive Officer. “We are reviewing our options at this time, including an appeal of any judgment that is ultimately entered by the Court.”  To recap, in 2016 BlueRadios filed a complaint in the U.S. District Court for the District of Colorado alleging that Kopin breached a contract concerning an alleged joint venture between the companies to design, develop and commercialize microdisplay products with embedded wireless technology referred to as “Golden-i,” breached the covenant of good faith and fair dealing associated with that contract, breached its fiduciary duty to BlueRadios, and misappropriated trade secrets owned by BlueRadios in violation of Colorado law and the Defend Trade Secrets Act. In addition, BlueRadios alleges that Kopin was unjustly enriched by its alleged misconduct and that the inventorship on at least ten patents or patent applications owned by Kopin need to be corrected to list BlueRadios’ employees as inventors and thereby list BlueRadios as co-assignees of the patents. BlueRadios is seeking monetary, declaratory, and injunctive relief, including for alleged non-payment of engineering retainer fees. In the past, Kopin management has been confident to prevail in court, as also evidenced by the fact that the company has not recorded an accrual for litigation or related claims. Defending against the BlueRadios litigation has impacted the company's financial results quite meaningfully in recent quarters with millions of dollars in legal expenses being incurred and another \"several million dollars\" expected with the recent trial as stated by management on the Q4/2023 conference call. However, following the surprise court loss, the company will either have to appeal the final judgment or settle with BlueRadios. In case of an appeal, the company would likely continue to incur material legal expenses for years to come, but Kopin doesn't seem to have much of a choice as the company apparently lacks the funds to settle with BlueRadios. After a largely disappointing FY2023, cash, cash equivalents and marketable securities were down to just $17.9 million at the end of Q4. Please note that this number includes $0.5 million in restricted cash.   Regulatory Filings After considering anticipated legal expenses with the trial and ongoing losses from operations, I would expect the company's unrestricted cash balances to be down substantially at the end of Q1 and well below $10 million at the end of Q2. In addition, with product revenues projected to pick up substantially in the second half of the year, Kopin will likely be required to invest in working capital, thus resulting in further cash usage. Adding insult to injury, the surprise jury verdict will almost certainly result in the requirement to include a going concern warning in the company's upcoming quarterly report on form 10-Q, with the potential to damage the company's stock price even further. In my opinion, only a substantial near-term capital raise would release the company from the requirement to include going concern language in the 10-Q. The jury verdict alone would require Kopin to raise up to $25 million for a potential settlement, but the company also needs additional funds to cover ongoing losses from operations. In sum, I wouldn't be surprised to see the company seeking $40+ million in new capital sooner rather than later. While Kopin has no debt, persistent losses from operations are likely to limit the company's ability to raise non-dilutive capital. Consequently, I would expect Kopin to offer additional equity or convertible debt at less-than-stellar terms. Clearly, market participants are aware of the company's limited options, as very much evidenced by Tuesday's 25% selloff. Given the increased likelihood of a highly-dilutive near-term equity raise, investors should abstain from buying the dip and rather consider selling existing positions until the company has successfully addressed its near-term capital needs. Bottom Line The surprise loss in the BlueRadios litigation is a major disappointment and leaves the company between a rock and a hard place. In case of an appeal, management will face more distraction and the company is likely to be saddled with substantial legal expenses for years to come, while a settlement would require raising additional capital. But even without a settlement, I would expect the company to raise a substantial amount of capital sooner rather than later to cover ongoing operating losses and avoid the inclusion of going concern language in its regulatory filings.  Consequently, investors should consider moving to the sidelines until Kopin Corporation has addressed its near-term capital needs.","kind":null,"is_publish_news":null,"is_publish_highlight":null,"is_publish_live":null,"is_publish_wemedia":null,"editions":null,"symbols":[],"gpt_button":0},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.22.4","shortVersion":"4.22.4","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2429232041"}